The Economics of Instant Gratification
NIH Behavior Change Conference
David Laibson
Harvard University and NBER
June 15-16, 2009
Bethesda, Maryland
Basic model of time preferences:
Quasi-hyperbolic discounting
• Present gets full weight
• Future gets weight β ~ 1/2
Strotz (1957), Herrnstein (1966), Phelps and Pollak (1968), Laibson (1997)
Application:
Exercise
• Suppose exercise generates 6 units of immediate cost
• Suppose exercise generates 8 units of delayed benefits
• Will you exercise?
• Exercise Today:
• Exercise Tomorrow:
-6 + ½ [8] = -2
0 + ½ [-6 + 8] = +1
• Agent would like to relax today and exercise tomorrow.
• Agent won’t follow through without commitment.
Key ideas
• Immediate costs/benefits have
disproportionate weight
• Consequently, people tend to avoid and/or
delay investment behaviors
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Human capital formation (education)
Exercise
Diet
Sexual abstinence
Smoking abstinence
Medical Adherence
Saving
Three interventions in savings
Pilot interventions in health
Automatic Enrollment
401(k) participation by tenure at firm
100%
Automatic
enrollment
80%
60%
Standard
enrollment
40%
20%
0%
0
6
12
18
24
30
36
42
48
Tenure at company (months)
Madrian and Shea (2001), Choi, Laibson, Madrian, Metrick (2004)
Active Decisions and Deadlines
401(k) participation by tenure
Fraction of employees ever
participated
100%
Active Decision Cohort
80%
60%
Standard enrollment cohort
40%
20%
0%
0
6
12
18
24
30
36
42
Tenure at company (months)
48
54
Active decision cohort
Standard
enrollmentMadrian,
cohort Metrick (2004)
Carroll,
Choi, Laibson,
Fraction Ever Participating in Plan
Simplified enrollment
2005
2004
2003
Time since baseline (months)
Beshears, Choi, Laibson, Madrian (2006)
Extensions to health domain
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•
•
•
Default appointments (e.g. colonoscopy)
Default nutrition (e.g. workplace cafeteria, vending)
Default & active decision immunization (e.g. flu shots)
Active decisions for good health behaviors (e.g. HD of
chronic medications)
• Default medical procedures (e.g. diabetics: stents vs.
drugs)
Neural mechanisms
Stay on your diet
I want a donut
(analytic cortex)
(meso-limbic
dopamine)
McClure, Laibson, Loewenstein, Cohen (2004)
McClure, Ericson, Laibson, Loewenstein, Cohen (2007)
Hare, Camerer, Rangel (2009)